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Bond Report: 10-year Treasury yield edges lower ahead of January jobs report


Long-dated Treasury yields moved lower early Friday as investors awaited a jobs report that will show how hard the omicron variant of the coronavirus hit the labor market last month.

What are yields doing?

The yield on the 10-year Treasury note TMUBMUSD10Y, 1.821% was at 1.819%, down from 1.825% at 3 p.m. Eastern on Thursday. Yields and debt prices move opposite each other.
The 2-year Treasury note yield TMUBMUSD02Y, 1.211% rose to 1.211%, up from 1.19% on Thursday afternoon.
The 30-year Treasury bond TMUBMUSD30Y, 2.133% was at 2.13%, down from 2.144% late Thursday.

What’s driving the market?

A busy week of labor market data culminates with the 8:30 a.m. Eastern release of the January jobs report. Economists surveyed by The Wall Street Journal forecasting nonfarm payrolls to rise 150,000, which would be the smallest gain in 13 months. But a great deal of uncertainty surrounds the report, with some economists warning of the possibility of a large drop in payrolls.

That’s because the spread of the omicron variant was peaking at the time when the government was compiling labor data last month. Hourly workers without paid sick leave that were absent from their jobs wouldn’t be counted as employed despite still having jobs. Earlier this week, Automatic Data Processing’s estimate of private-sector jobs showed an unexpected decline. While the ADP data isn’t seen as a reliable guide to the official data, economists said the factors that led to its negative print could also affect Friday’s report.

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The unemployment rate, meanwhile, which is compiled differently, was expected to show little damage from the omicron variant, with economists looking for it to come in unchanged at 3.9%. And St. Louis Federal Reserve Bank President James Bullard has warned that a weak January payrolls report would be misleading, belying a strong economy and labor market.

The takeaway, analysts said, is that any fall in payrolls will probably be reversed in February. That means a weak January report is unlikely to sway the Federal Reserve from its expected path, with policy makers expected to begin lifting interest rates in March.

What are analysts saying?

Investors “need to be careful not be ‘head-faked’ by the jobs report,” said Scott Ruesterholz, portfolio manager at Insight Investments, in a note. “Policy makers are proactively coming out saying they won’t be with several Fed members discounting the importance of Friday’s report.”

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